Big round numbers
are irresistibly alluring. There is some kind of psychological
gravity about them that captures people’s attention. Remember when
the Dow 30 first breached 10k (March 1999) or oil first exceeded
$100 (February 2008)? These were major financial-media
events that spilled widely into the mainstream consciousness.

I suspect the next
great big round number to be achieved will be $1000 gold. While
gold did indeed close slightly above $1000 for two days in March
2008, it has never been able to sustain this key psychological
milestone. Even at the climax of its late 1970s bubble in January
1980, gold only hit $850 in nominal terms (about $2300
in today’s
dollars). Gold’s quest for $1000 has proven exceedingly
elusive.

With this
tantalizing target perpetually eluding gold, why is it finally
within reach now? A powerfully bullish convergence of fundamentals,
technicals, and sentiment has rendered it all but a fait accompli.
Gold’s fundamentals, declining worldwide
mine production
in the face of growing global investment demand, are the primary
reason why gold will soon exceed $1000. I wrote a comprehensive
essay analyzing the bullish
gold
fundamentals late last year if you’d like to get up to speed on
them.

Today I want to
focus on the technical and sentimental aspects of gold’s quest for
$1000. While fundamentals can give us a rough idea of which way a
price should move on balance (up) and for how long (many years),
they are too abstract to offer much insight on trade timing. That’s
where technicals and sentiment come in. And they are suggesting
gold $1000 will be decisively breached soon, probably within months
and almost certainly before 2009 gives up its ghost.

Given gold’s
troubled history around $1000, a technical wasteland where rallies
die violently, I realize it seems foolhardy to most traders to
expect sustained $1000+ gold anytime soon. Yet I think if you
compare gold’s technicals today with its technicals at previous
$1000 attempts, the bullish case for a near-term decisive $1000
breakout is very compelling. Walk through the charts with me and
then decide yourself.

Despite the
feeling that gold has been struggling with $1000 forever, this quest
is actually pretty new. March 2008, just 16 months ago, marked the
first-ever $1000 attempt. Since then there have been two subsequent
attempts in 2009, both unsuccessful. But for a variety of technical
reasons (which help drive sentiment), each subsequent attempt has a
higher probability of finally breaking the $1000 shackles.

The first attempt
at $1000 had its roots back in August 2007. Gold had spent much of
that year consolidating between $650 and $700, and by mid-August it
was again languishing near $652. At the time, most traders were
very bearish on gold. Its highs were drifting lower and calls
abounded for a steep washout selloff. But this excessive
bearishness proved to be fertile soil from which the biggest gold
upleg of this entire secular bull emerged.

Gold initially
shot to $835 by early November, a stellar 28% gain in less than 3
months. Then it consolidated around $800 for about 6 weeks, before
heading off to the races again in late December. On the first
trading day of 2008, it closed at $857 to achieve a new all-time
nominal high. This garnered widespread media coverage and got many
new investors excited about deploying in gold, an important
precedent for the coming $1000 breakout.

Gold continued
surging on balance, rarely looking back after blasting through its
January 1980 high. By March 2008, gold briefly climbed over $1000
for the first time ever. But its $1005 close had the misfortune of
happening the day before Bernanke’s Fed cut interest rates by 75
basis points instead of the expected 100bp. This took pressure off
the US dollar and sparked a sharp commodities selloff. Over the
next 3 days after the Fed’s “moderation”, gold plunged 9.3% and
hopes for $1000+ were quickly crushed.

But the
circumstances of gold being repelled at $1000 on its first attempt
aren’t anywhere near as relevant as the rally leading up to it.
Between August 2007 and March 2008, gold had rocketed 54% higher!
This was a stupendously big and fast move dwarfing anything that
came before it in this bull. It works out to a 0.4% per day average
gain. Yet in gold’s entire secular bull before this, since April
2001, its average daily gain had only been 0.1%. After such an epic
run to $1000, traders were understandably wary.

Less than a year
earlier, they had perceived $650 to $700 as being “normal” for the
gold price. So $1000 then looked way overbought to almost everyone,
even many hardcore gold bulls. In addition, as you can see above,
$1000 was way above gold’s uptrend’s resistance. It is tough, if
not impossible, to sustain new highs in such a scenario. After any
abnormally large rally to new highs, backing and filling is
necessary to gradually get traders comfortable with the new
prevailing levels.

This high
consolidation after a huge and fast rally helps redefine norms for a
price. There is a tug-of-war between sellers and buyers as everyone
is trying to understand whether what once seemed like crazy-high
levels are now sustainable. The longer a price consolidates high,
the more traders come to accept these levels as the new norm. In
gold’s case, it consolidated around $900 for several months after
this first $1000 attempt. Going from a $675 base a year earlier to
$900 was a big jump.

But traders soon
acclimated to the new higher prevailing gold levels. In July 2008
as commodities prices surged to
record highs,
gold caught a bid and was driven over $975. But this extra-trend
spike fizzled out before it became a full-blown $1000 attempt. It
didn’t come within 2% of $1000. Commodities were correcting and
gold started plunging in the bond panic anomaly preceding the stock
panic.

A year ago this
month, there was a panic in the bond markets as the massive US GSEs
(Fannie and Freddie) backing mortgages were on the verge of
bankruptcy. Big foreign investors rushed to sell bonds and bought
US dollars (to buy US Treasuries), kicking off the biggest and
fastest US dollar rally ever witnessed over such a short span of
time. The result was gold got crushed, first by the bond
panic and then by the stock panic. I wrote about this crazy episode
in depth in
October and
May if you want some more background on its gold impact.

These back-to-back
panic anomalies were the result of pure fear, not fundamental
weakness in gold. So once the fear bubble started abating in
stocks, gold started climbing back up into its trend. The first
true stock panic
in 101 yearsmust be viewed as an anomaly in commodities
including gold. The hyper-fearful sentiment spilled over from the
stock panic, but soon after that gold’s anomalous lows quickly
unwound. Realize the sole reason a second $1000 attempt didn’t
happen sooner was this panic.

Between
mid-November at its panic low to late February, gold again blasted
40% higher. Not only was this a huge move, but it was also very
fast. It averaged 0.6% per day, 6x this gold bull’s average pace
prior to August 2007! The lion’s share of this spike was driven by
heavy GLD gold ETF
buying by stock investors, and it was enough to carry gold to
$992 by late February. But again external factors short-circuited
gold’s ascent before $1000 could be breached.

The stock markets
were slumping into despair in late February, spawning fears of a
renewed panic. Washington, instead of helping investors, was
targeting us for radically higher taxes, suffocating new
regulations, new government bailouts of bad players who should fail,
and much other anti-free-market pro-socialism nonsense that sapped
confidence. So investors again fled all markets, including gold.

But regardless of
the reasons it failed, again the most relevant aspect of this second
attempt is where gold came from technically. It had rallied
hundreds of dollars an ounce in a very short period of time. It
looked overbought on a short-term basis at $1000 and it was above
trend. Extra-trend spikes seldom lead to sustainable highs because
a price is naturally so overextended after such a move.

But since that
second attempt, several remarkable things have happened. First,
gold didn’t collapse after it. Instead it consolidated high,
averaging $927 since February in its highest base ever witnessed.
Second, gold actually made a third attempt at $1000 in early June.
The time between $1000 attempts compressed dramatically. This is
the natural result of gold’s uptrend inexorably pushing it ever
closer to $1000. The rising support line, sans panic anomaly,
clearly shows this trend.

And $1000 gold is
finally within trend! This is a really big deal. The great
majority of investors and speculators use technicals, they consider
recent price action within chart context before making buy and sell
decisions. And a price within trend, no matter how psychologically
significant it is, is always more comfortable than a price out of
trend. Traders are not likely to sell until resistance is hit, and
now that $1000 is finally under resistance the odds of it being
decisively breached have never been higher.

Provocatively
these technicals are fractal in nature, they appear similar and work
similarly at many different scales. The first gold chart above
looked at gold’s technicals over years, showing gold getting
ever closer to breaking above $1000. Interestingly, if we zoom into
each of these 3 previous attempts on multi-month charts, the
same phenomena become apparent at this scale too. Until now, $1000
was always overextended and above trend.

Gold’s initial
March 2008 attempt at $1000 was well above its short-term uptrend.
$1000 was a technically uncomfortable place then, too far outside of
normal price levels at the time and hence likely to spark technical
selling. Even without the Fed’s surprise decision that hammered
commodities the day after gold peaked, gold was just too far above
its uptrend’s resistance and 200-day moving average then to sustain
$1000.

Gold’s second
attempt at $1000 almost a year later in February 2009 looked similar
on short-term charts. It was a spike well above trend driven by
heavy hedge-fund buying in GLD. But after soaring 22% higher in
just 5 weeks, a staggering average rate of ascent of 0.9% per day
(9x this bull’s average), there is just no doubt that gold was
looking overbought on a short-term basis. And indeed it soon
plunged back into trend.

The third attempt
in early June was much less extreme. Gold simply did not rally as
far (just 13%) or as fast (6 weeks or 0.4% per day on average) as it
had in its first and second attempts. And not surprisingly given
this more modest ascent, gold’s post-attempt pullback was much
milder in recent weeks. Since it wasn’t overbought, and since it
remained within trend, there were no technical reasons for traders
to sell aggressively so gold just modestly drifted lower.

And now, just like
in the first multi-year chart, $1000 gold is finally within trend
for the first time ever! Gold’s next $1000 attempt will not
require an unsustainably big or fast rally nor will it carry gold
into technically overbought territory. Because of this, and all the
time gold has been spending up in the $900s basing this year,
traders are not going to consider $1000 excessive like they did in
previous attempts. Gold’s short-term support is also nearing $1000,
corralling gold ever closer to its decisive breakout.

I realize plenty
of folks (but almost never speculators) discount all this technical
chart stuff as nonsensical mysticism, totally irrelevant. But they
are mistaken. It is sentiment (greed and fear), not fundamentals,
that drives short-term price movements. And overboughtness and
oversoldness creates this sentiment. And these states are only
recognizable in price context, and this context is best provided by
price charts. Recent price action drives sentiment, and even
financial news, influencing most trading decisions.

So if you are
skeptical on the incredible importance of $1000 finally being within
multi-year and multi-month trends for the first time ever, carefully
consider a real case study from earlier in this gold bull. It
centers on gold denominated in euros. For years, gold attempted to
break above the critical level of €350. And for years it failed.
So €350 became a huge psychological hang-up for European gold
investors. It was their equivalent of $1000 in the States today, a
pivotal level that seemed impossible to breach.

I was writing
many essays in the
early 2000s telling investors to buy gold and gold stocks to ride
the then-new-and-unknown secular gold bull. Invariably after an
essay was published, European investors would e-mail me and claim
that what we saw as a gold bull in the States was merely a
US dollar bear.
They were partially right of course, gold was rising much faster in
the States than elsewhere as the dollar slumped relentlessly. But
it still truly was a global gold bull even then.

I’d always ask the
Europeans to not only consider the extra-trend extremes, but the
preponderance of the trend. It is the center-mass of the trend that
matters, not fleeting outlying spikes or slumps. I pointed out to
them that euro gold’s secular support was well-defined and rising,
and it was driving euro gold ever closer to €350. I not only
advised them that the €350 breakout was inevitable, but that it
would spark huge new investment demand and usher in
Stage Two of
this gold bull where global investment demand, not the falling
dollar, drove gold higher worldwide.

This next chart is
a new update of one I ran in a euro gold €350 essay
in June 2005
when the breakout was finally starting. The analogies between the
long quest for €350 and today’s quest for $1000 are quite
compelling. The €350 breakout that kicked off the current stage of
our gold bull eluded investors for years, but finally happened
the very first time that €350 was within trend and not
overextended.

Euro gold first
tried for €350 in early February 2002. But this was a big
extra-trend spike, not only well above trend resistance but after a
blisteringly-fast rally. Euro gold actually consolidated high after
this, making a second attempt in May 2002. But these levels were
too new to traders, euro gold was just too overbought, so
speculators wouldn’t chase euro gold higher. The psychology for a
breakout wasn’t there.

The third attempt
happened a year after the first in February 2003. But it was again
a sharp extra-trend spike well above resistance. It soon collapsed
and headed all the way back down to trend support, much like we saw
dollar gold do after its second attempt at $1000 in February 2009.
After this third failed euro gold €350 attempt, European investors
were really discouraged. They figured €350 would never fall, that
European central banks would sell enough gold to cap the metal under
350 euros per ounce.

The fourth attempt
was over a year later in March 2004. But €350 was still above euro
gold’s secular uptrend’s resistance, and the metal had surged
sharply to get there. Traders weren’t comfortable enough that €350
was sustainable to deploy additional long positions above resistance
at a level that had been a graveyard in the sky for years. European
gold investors’ discouragement naturally deepened.

But by late 2004,
euro gold’s uptrend had finally climbed over the vexing perceived
resistance at €350. And interestingly, the very first time that
euro gold went over €350 after it was finally within trend,
the long-awaited breakout happened! That was June 2005. And this
breakout wasn’t feeble, once it finally happened euro gold
never looked back.
So far in 2009 euro gold has averaged €684, nearly twice the level
of its initial breakout that seemed so impossible for so many years!

This comparison’s
strategic parallels to $1000 today are very compelling. €350 failed
for years and seemed insurmountable, just like $1000. But gradually
gold was basing at higher and higher levels as its bull’s support
drove it inexorably higher. And when €350 was finally within
the uptrend instead of being overextended and requiring overbought
sentiment to get it there, gold easily punched through. We’ll
probably see a similar thing happen with $1000 soon.

The most important
benefit of the €350 breakout was its catalytic nature. The great
majority of foreign investors had not yet been interested in gold,
but once €350 was exceeded the coverage captured their attention.
Foreign gold investment surged dramatically, pushing gold into its
global Stage Two bull. After breaking above €350, euro gold didn’t
take a breather until it exceeded €550 almost a year later! I
suspect $1000 will have a similar catalytic effect on American
investors today.

Despite gold
nearly quadrupling since early 2001, it largely remains the realm of
contrarians. Most mainstreamers have zero gold exposure in their
portfolios, they haven’t even thought about owning gold yet. But
when $1000 decisively falls, the coverage of this event in the
financial and mainstream media will probably be extensive. Nothing
attracts in new investment like major new psychological highs, and
$1000 gold sure is a big one. It will probably unleash a deluge of
new gold investment, driving this metal rapidly higher.

Remember that oil
didn’t collapse once it broke above $100, but powered on to $145
within 5 months. And without the stock panic last year, I suspect
it would still be over $100 today. Investors chase performance, and
a breakout above a big psychological round number really catches
their attention. All kinds of capital flocks in to ride the
momentum that is suddenly obvious to everyone.

At Zeal we’ve been
riding this gold bull in elite gold stocks since its very beginning
in April 2001. And since the stock panic, we’ve been gradually
layering in positions that have already rallied nicely. But it
isn’t too late to buy. Once $1000 is broken, and technicals suggest
it will be soon, there will likely be a rush to buy elite gold
stocks. You can
subscribe to our acclaimed
monthly newsletter
today, see which gold stocks we are buying (and when and why), and
position your own portfolio to soar in the inevitable $1000
breakout.

The bottom line is
gold’s quest for $1000 is nearing fulfillment. Not only are its
fundamentals very bullish (including
big inflation
coming), but for the first time ever its technicals support such
a move. $1000 is no longer overextended or overbought, but actually
within multi-year and multi-month trends. It won’t require much
buying by traders to push it over $1000 now, and $1000 won’t feel
excessive given gold’s high base.

And gold $1000 is
not just a curiosity, but a potential major driver of large new
investment demand. Big round numbers are widely reported, which
drives interest among a far greater population of investors. $1000
could even prove, in retrospect, to be the point when gold
investment started growing desirable among average mainstream
investors. It is a critical psychological milestone with very
bullish implications.